HSBC Asset Management to phase out thermal coal
Our asset management business today sets out its policy for phasing out coal-fired power and thermal coal mining from its listed holdings in the EU and OECD markets by 2030, and globally by 2040.
HSBC Asset Management (HSBC AM) will actively engage with companies’ management, and over time divest from companies and vote against company chairs with inadequate transition plans, to help accelerate the demise of thermal coal across the world.
The policy forms part of its commitment to the Net Zero Asset Managers initiative (opens in new window) , an international group of asset managers focused on supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5°C, and supporting investing aligned with net zero emissions by 2050 or sooner.
It’s also the latest initiative supporting our Group strategy to phase out thermal coal financing , in a net zero aligned timeline, in a way which enables HSBC to help finance a just transition in emerging markets heavily reliant on coal.
What it means
Engagement: If engagement has not been successful, HSBC AM will not vote for the re-election of chairs of listed issuers with more than 10 per cent revenue exposure to thermal coal that do not provide Task Force on Climate-Related Financial Disclosures or equivalent reporting. It will also vote against chairs whose transition plans remain inadequate following engagement .
HSBC AM is strengthening its engagement with these issuers and will divest over time from companies whose transition plans are considered incompatible with its net zero objective.
Engagement and voting activity will extend across both active and passive holdings.
Active portfolios: By the end of 2030, HSBC AM will not hold listed securities of issuers with more than 2.5 per cent revenue exposure to thermal coal in EU / OECD markets and globally by 2040 across its actively managed portfolios. The policy will apply to all portfolios where HSBC AM has investment discretion and funds where it has significant control .
HSBC AM does not make direct investments in new or existing thermal coal projects.
Starting immediately, actively managed portfolios will not participate in IPOs or primary fixed income financing by issuers engaged in thermal coal expansion.
For all other issuers with more than 10 per cent revenue exposure to thermal coal, participation in IPOs or primary fixed income financing will be subject to enhanced due diligence of transition plans to ensure alignment with HSBC AM’s net zero commitments.
Passive: There will be no new exchange traded funds (ETFs) or index funds with more than 2.5 per cent exposure to thermal coal issuers. The only exception would be if an ETF or index fund’s strategy had specific Paris-aligned 1.5°C objectives and / or clear divestment pathways.
HSBC AM expects thermal coal exposure to decrease across all indices and will work with index providers to extend the range of indices and passive products that do not have exposure to thermal coal.
What we’re saying
“This is a determined step to phase out thermal coal. Global emissions will only be reduced if there is concerted collaboration to meet the goals of the Paris Agreement and we are committed to playing our part,” said Nicolas Moreau, CEO, HSBC Asset Management.
“We have already stopped direct investments in new or existing thermal coal projects. We are working on two fronts: coal phase out will go hand-in-hand with pioneering new investment solutions in our Alternatives business to scale sustainable infrastructure investment and venture capital for critical climate technology solutions.
“We believe in working in partnership with our clients to transition away from thermal coal, while supporting a just transition. But we are clear that we will need to walk away from companies who don’t or won’t take active credible steps to reduce emissions.”
Footnotes: For voting, HSBC Asset Management uses Transition Pathway Initiative scores to assess issuers’ progress with transition, alongside its own analysis. HSBC AM intends to have engaged with all listed issuers with more than 10 per cent revenue exposure to thermal coal in active portfolios by the end of 2023 and for all ETF/index portfolios by the end of 2025. Examples would include areas where HSBC AM does not have full portfolio discretion, or board/equity control e.g. joint ventures, independent director controlled fund boards and client segregated mandates. For now, commitments included in this policy will be subject to client, fund director and regulatory approval. Under Enhanced Due Diligence for IPOs and primary debt issuance, investment teams will have to assess the transition plans of any issuer with more than 10 per cent revenue exposure to thermal coal for alignment with our Net Zero Objective. This assessment will be overseen by Asset Management’s Asset Class ESG Committees and ESG Oversight Committee.